Our working hypothesis is that there has been a coordinated intervention by several central banks to support the dollar, perhaps tied to an overall message to Russia from the Bush Administration. Foreign central banks, most notably Japan, have been supplying significant capital to the Fed via the custodial accounts as noted in the last chart.
One or more of the big multinationals became aware of this and have taken the opportunity to trigger a forced liquidation among the hedge funds as they unwind cross trades, such as short financials - long oil. The funds are also strangled for short term liquidity as the banks suck up the available capital.
We may see several hedge funds and commodity brokers fail because of the steepness of the decline. We think the predators will emerge and become known. They may even be the same ones who helped to trigger the run on Bear Stearns.
We doubt this is a major trend change simply because the fundamentals for the dollar and the economy are so negative, and world growth has not gone on permanent hold. The demand-supply figures are compelling.
The mantra now is "Yes the US is bad but Europe is worse." Perhaps, but the jury is still out and it does sound a little too Orwellian.
The dollar is at serious resistance, and gold has strong support at 790. Let's see what happens.
